Credit rating symbols are the alphabetic representation of credit rating grades given by credit rating agencies to companies or their financial instruments. These symbols provide an easy-to-understand indication of creditworthiness to investors and creditors.
The credit rating symbols vary among credit rating agencies, but the basic idea is to assign a letter or number grade to a company or its financial instrument based on its creditworthiness. The higher the grade, the lower the risk associated with the investment.
In India, the two major credit rating agencies are CRISIL and ICRA, which use the following credit rating symbols:
- Long-term Credit Ratings:
a. AAA: Highest credit quality indicating the company’s capacity to repay its debt is extremely strong.
b. AA: High credit quality indicating the company’s capacity to repay its debt is strong.
c. A: Good credit quality indicating the company’s capacity to repay its debt is adequate.
d. BBB: Moderate credit quality indicating the company’s capacity to repay its debt is adequate.
e. BB: Inadequate credit quality indicating the company’s capacity to repay its debt is weak.
f. B: High risk credit quality indicating the company’s capacity to repay its debt is very weak.
g. C: Very high risk credit quality indicating the company’s capacity to repay its debt is extremely weak.
h. D: Default credit quality indicating the company has already defaulted or is expected to default on its debt.
- Short-term Credit Ratings:
a. A1: Highest credit quality indicating the company’s capacity to repay its short-term debt is strong.
b. A2: Good credit quality indicating the company’s capacity to repay its short-term debt is adequate.
c. A3: Moderate credit quality indicating the company’s capacity to repay its short-term debt is acceptable.
d. P1: Highest credit quality indicating the company’s capacity to repay its commercial paper is strong.
e. P2: Good credit quality indicating the company’s capacity to repay its commercial paper is adequate.
f. P3: Moderate credit quality indicating the company’s capacity to repay its commercial paper is acceptable.
The credit rating symbols are often accompanied by a ‘+’ or ‘-‘ sign, indicating the relative position of the rating within the category. For example, AA+ indicates a higher credit quality than AA, and AA- indicates a lower credit quality than AA.
It is important to note that credit rating symbols are not a guarantee of the company’s creditworthiness or the safety of the investment. They are only one of the factors to be considered while making an investment decision.